Risk is simply defined as “a situation involving exposure to unknown and known events.” To mitigate known fiscal risk in any business or organization, it is incumbent upon the Finance team to consistently look at the ever-changing and evolving picture, plus the long game. That major bullet point of the CFO’s job description is a daily balancing act – one that can feel like a game of Jenga – to put blocks of standard operating procedures and effective planning in place coupled with a strong, engaged team. Over my career, I have sought to maintain this direct link between risk management and talent retention.
Risk — Small Word, Potential Large Impact
If you are in a Chief Financial Officer (CFO) role or the like, your major responsibilities will include linking the organization’s Strategic Plan with financial performance, plus the prioritization of operational safety’s impact on the organization and the negotiation of an insurance portfolio. Lacking capacity? Consider transferring fiscal and legal consequences to another party for items running the gamut from insurance and outsourcing to subcontracting and contract indemnification.
There are several integral steps in delineating your Enterprise Risk Management (ERM) process – and you cannot do it alone as a Finance team. The ERM must bring in the unique expertise of Operations, Compliance and Programs staff, plus insights into the appetite for risk must be garnered from the Executive team and Board. As a CFO, I start with understanding the layers of the business model, along with engaging in conversations with key stakeholders. I then identify drivers that are sensitive to economic conditions, complemented by my explaining how I have prioritized resource allocation to reduce risk.
My toolkit for prioritizing risk, honed over my career in the field, includes: performance and gap analysis to identify areas that impact internal controls; insurance review to determine if caps will suffice in worst-case scenarios; incident report review, conducted periodically to look at all incidents and identify patterns; and audits, which serve as internal and external indicators of the trends and probability of risk.
Once there is an agreed-upon level of risk acceptable to the organization, you must identify each area of risk and grade from low probability up to high impact what can be mitigated via what strategies.
Take as an example cyber insurance, with an increase of hackings for ransom a reality with which we must all deal. Is such a financial attack deemed low risk? Medium risk? High risk? Once that determination is made, allocate time to review ERM results and focus more on implementing solutions that focus on avoiding, transferring, accepting or reducing known risk.
In a nutshell, it comes down to partnering with insurance brokers, negotiating insurance premiums and insurance package limits, and working collectively. The latter demands a strong internal Finance team that will work across the organization to alert and help divisions to make decisions that will reduce the risk.
Institutional knowledge loss creates challenges. As they say, “those who forget history are doomed to repeat it.” Maintaining a strong Finance team is paramount to successfully mitigating financial risk.
During onboarding, I always make sure that a new employee is aligned with LIIF’s mission that “everybody in the United States should benefit from living in a community of opportunity, equity and well-being.” Taking the time to remind the team of our mission always grounds us, especially during work challenges. Remembering that we are all here for the same reason helps move us forward.
It is imperative to keep your staff valued and engaged in their work. While industry-best compensation and benefits packages are the start, there is so much more managers can, and should, do. One way is to create clear career pathways in the organization, ensuring internal promotions for open positions are explored before seeking external candidates. Transparency is key, and innovative ideas should include items such as offering an opportunity to shadow leaders.
We all want clear expectations, which is why it is incumbent upon Finance team leaders to define yearly key performance indicators (KPIs) and, via hands-on partnering with other departments, define objectives and key results (OKRs). This collectively defines the path to where the organization needs to be. Consistent check-ins determining where the team member is regarding these KPIs help identify any challenges they are experiencing, with potential support needed being identified. Your performance reviews should be kept simple, but concrete. The right goal-setting framework is based upon the organizational structures, which translate strategy into execution. Organizational health is tied to staff’s perception of how well the nonprofit delivers impact. OKRs help organizations lay a solid foundation for a larger strategy transformation, with people at its core.
Autonomy is my priority as I create a team that is strong and resilient. If the team can drive changes and make decisions as they see fit, then they feel trusted, thereby increasing their engagement with the organization and its mission.
Team retreats, which I conduct quarterly, also work well in creating alignment and refining any areas needing a reboot. Seek team feedback on the agenda and keep topics streamlined to allow for in-depth discourse.
Through it all, communication is the key.
Mitigating risk is a major responsibility of any Finance team, but it need not be a daunting task. Having standard operating procedures in place creates consistency year by year, keeping your organization in a financially sound position with effective collaboration and communication. Add a successful talent-retention strategy and you will ensure your success as the leader of a Finance team.